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Amazon shares drop after earnings fall short

Amazon shares fell in extended trading after it reported earnings per share that came in far below analyst estimates on Thursday.

The company posted third-quarter earnings per share of 52 cents on revenue of $32.71 billion. Analysts expected the online retail giant to post earnings of 78 cents a share on revenue of $32.69 billion, according to a Thomson Reuters consensus estimate.

The stock fell more than 5 percent in extended trading as more than 1.6 million shares changed hands.

The e-commerce giant saw $18.87 billion in North America sales during the quarter. That figure comes in below analyst expectations for $19.09 billion, according to FactSet. International sales, however, came in at $10.61 billion, above Wall Street projections for $10.44 billion, according to FactSet.

In the second half of the year, Amazon has increased its investments in its fulfillment centers and video content, CFO Brian Olsavsky said in a Thursday earnings conference call. He said that this spending is a "step-up" compared to what Amazon did in the first half of the year or the second half of last year.

Amazon's revenue outlook for the holiday season also came in slightly below expectations. The company said it expects fourth-quarter sales between $42 billion and $45.5 billion. The midpoint of that range came in below analyst expectations for fourth-quarter sales around $44.58 billion, according to a Thomson Reuters consensus estimate.

Amazon Web Services, the company's cloud computing business, brought in $3.23 billion in revenue during the quarter. Wall Street projected AWS to bring in $3.17 billion in sales during the quarter, according to a FactSet consensus estimate.

Operating margin for AWS climbed to 31.6 percent, up from 29.9 percent in the previous quarter.

The AWS results looked strong, as revenue grew nearly 55 percent, Michael Graham, managing director at Canaccord Genuity, said on CNBC's "Closing Bell" on Thursday.

"That is really important because in a few years AWS will be half of Amazon earnings and is a big growth driver," he said.

Raymond James' Aaron Kessler agreed and said that the important thing for Amazon is what it decides to invest in. In general, the company tends to invest very well as businesses like AWS have "clearly" been "the right bets," Kessler said on "Closing Bell."

Last week, Pacific Crest Securities raised its full-year revenue estimate for Amazon Web Services and said the segment's revenue could grow 61 percent and 60 percent annually in 2016 and 2017, respectively.

While the cloud services market is increasingly competitive, "the shift to cloud is still early enough that multiple vendors can continue to grab new business while maintaining high growth trajectories," Pacific Crest said in a research note.

The stock has been on a tear this year, gaining 21 percent and hit a new all-time high as recently as Oct. 6 at $847.21 a share. Historically, Amazon has been a good stock to hold going into the holiday season, Nomura said in a research note.

"In 8 of the last 11 years, AMZN has out-performed the SPX between October 1st and the end of the year and has seen double digit out-performance in 3 of those 8 years," the firm said in a note published Monday.

Earlier this month, Amazon said it expects to create 120,000 seasonal jobs this holiday season and that it expects to transition more of those seasonal workers into full-time roles. Amazon said it transitioned 14,000 seasonal workers last year.

Disclosures: Canaccord Genuity or one or more of its affiliated companies is a market maker or liquidity provider in the securities of Amazon.com or in any related derivatives. Raymond James makes a market in the securities of Amazon. Pacific Crest Securities expects to receive or intends to seek compensation for investment banking services from Amazon within the next three months. During the past 12 months, Amazon has been a client of the firm or its affiliates for non-securities related services. As of the date of its report, Pacific Crest makes a market in Amazon.

— CNBC's Rachel Cao contributed to this report.